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Expanding Medicaid Is Best Financial Option for States

For Release

MondayJune 3, 2013

States that choose not to expand Medicaid under federal health care reform will leave millions of their residents without health insurance and increase spending, at least in the short term, on the cost of treating uninsured residents, according to a new RAND Corporation study.

If 14 states decide not to expand Medicaid under the Affordable Care Act as intended by their governors, those state governments collectively will spend $1 billion more on uncompensated care in 2016 than they would if Medicaid is expanded.

In addition, those 14 state governments would forgo $8.4 billion annually in federal payments and an additional 3.6 million people will be left uninsured, according to findings published in the June edition of the journal Health Affairs.

“Our analysis shows it's in the best economic interests of states to expand Medicaid under the terms of the federal Affordable Care Act,” said Carter Price, the study's lead author and a mathematician at RAND, a nonprofit research organization.

“States that do not expand Medicaid will not receive the full benefit of the savings that will result from providing less uncompensated care,” Price said. “Furthermore, these states will still be subject to the taxes, fees and other revenue provisions of the Affordable Care Act, without reaping the benefit of the additional federal spending which will costs those states economically.”

Price and study co-author Christine Eibner used the RAND COMPARE microsimulation model to estimate the likely effects if 14 states choose not to expand Medicaid under federal health care reform. Among the measures studied are the impacts of Medicaid expansion on insurance coverage, federal payments into the states and state spending on care for the uninsured.

The states studied are Alabama, Georgia, Idaho, Iowa, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas and Wisconsin. Although governors in additional states oppose expanding Medicaid, the 14 states in the study were the first whose governors said they would not expand Medicaid. At the time of the analysis, these were seen as the least likely to expand Medicaid.

Last summer's U.S. Supreme Court ruling on the Affordable Care Act gave states the ability to block the law's expansion of Medicaid, the federal-state program that provides health insurance to low-income families. The Affordable Care Act provides support to expand Medicaid to include families that earn up to 138 percent of the federal poverty level.

The federal government will pay a much larger share of costs for the Medicaid expansion than it does for current Medicaid enrollees. It will cover 100 percent of the costs for expanding Medicaid beginning in 2014 through 2016, and then gradually decrease support to 90 percent of costs beginning in 2020. The federal government currently pays an average of 57 percent of the cost of Medicaid.

The RAND study found that the cost to states for expanding Medicaid generally would be lower than the expense state and local governments will face for providing uncompensated care to uninsured residents after implementation of the Affordable Care Act.

Researchers estimate that increased insurance coverage triggered by health reform will reduce state and local spending on uncompensated medical care by as much as $18.1 billion annually across all states. Those savings may continue beyond 2020, when the states' share of Medicaid costs plateaus.

“State policymakers should be aware that if they do not expand Medicaid, fewer people will have health insurance, and that will trigger higher state and local spending for uncompensated medical care,” Price said. “Choosing to not expand Medicaid may turn out to be the more-costly path for state and local governments.”

The study suggests that changes could be made to the Affordable Care Act to help some people targeted by the Medicaid expansion to get health insurance coverage through other means. Those options include a smaller expansion of Medicaid or changes in the new state insurance exchanges to allow more poor people to purchase private health insurance.

The RAND study shows the alternatives could help provide health insurance to some people targeted by the Medicaid expansion. But none of the options examined would provide health coverage to as many people as full Medicaid expansion.

Researchers also outline how failing to expand Medicaid could have more than financial consequences. Based on earlier research showing that past expansions of Medicaid has led to decreases in deaths, the study estimates that an additional 19,000 deaths could occur annually if the 14 states studied do not expand Medicaid.

Support for the study was provided by RAND's Investment in People and Ideas program, which combines philanthropic contributions from individuals, foundations, and private-sector firms with earnings from RAND's endowment and operations to support research on issues that reach beyond the scope of traditional client sponsorship.

RAND Health is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care costs, quality and public health preparedness, among other topics.

The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest.